New statistics provide a scathing indictment of actively managed equity funds
The idea of beating the market may be little more than a dream, if figures released by S&P Dow Jones are to be believed.
As reported in the Financial Times, the index provider’s numbers show almost all US, global, and emerging market funds have failed to outperform since 2006. The analysis showed that 99% of actively managed US equity funds sold in Europe have not beaten the S&P 500 over the past 10 years, and only two of every 100 global equity funds have outperformed the S&P Global 1200 since 2006. Nearly 97% of emerging market funds have underperformed.
“These numbers are scary,” said Amin Rajan, chief executive of Create Research. “Active managers need a root-and-branch look at their investment processes to retain their relevance in today’s surreal investment landscape.”
Active fund managers have borne repeated attacks from academics and consumer groups for failing investors, prompting the UK’s financial regulator to initiate a first-of-its-kind investigation to examine fund fees and profitability in the asset management industry. The results are due later this year.
Investors who have repeatedly been disappointed with overpriced, underperforming active funds have also been migrating toward cheaper indexed and exchange-traded funds. “The S&P figures have become a massive boon for the ETF industry,” said Stewart Aldcroft, senior adviser on the Asian fund industry at Cititrust. “The active industry has built a whole range of arguments against [S&P’s statistics], but until they start to consistently achieve better returns, they will continue to be on the back foot.”
Other passive instruments have also benefited. Investment research firm Morningstar reports that globally, active funds still have larger holdings than passives, with assets of $24 trillion compared to $6 trillion in passive funds. However, assets managed in passive mutual funds have grown four times faster than traditional active products since 2007.
“These figures have to be worrying to fund managers who are essentially sitting on large amounts of assets and charging the wrong fees, and who are unable or unwilling to take the risks to try and outperform their indices,” said Dan Mannix, chief executive officer at London-headquartered RWC.
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As reported in the Financial Times, the index provider’s numbers show almost all US, global, and emerging market funds have failed to outperform since 2006. The analysis showed that 99% of actively managed US equity funds sold in Europe have not beaten the S&P 500 over the past 10 years, and only two of every 100 global equity funds have outperformed the S&P Global 1200 since 2006. Nearly 97% of emerging market funds have underperformed.
“These numbers are scary,” said Amin Rajan, chief executive of Create Research. “Active managers need a root-and-branch look at their investment processes to retain their relevance in today’s surreal investment landscape.”
Active fund managers have borne repeated attacks from academics and consumer groups for failing investors, prompting the UK’s financial regulator to initiate a first-of-its-kind investigation to examine fund fees and profitability in the asset management industry. The results are due later this year.
Investors who have repeatedly been disappointed with overpriced, underperforming active funds have also been migrating toward cheaper indexed and exchange-traded funds. “The S&P figures have become a massive boon for the ETF industry,” said Stewart Aldcroft, senior adviser on the Asian fund industry at Cititrust. “The active industry has built a whole range of arguments against [S&P’s statistics], but until they start to consistently achieve better returns, they will continue to be on the back foot.”
Other passive instruments have also benefited. Investment research firm Morningstar reports that globally, active funds still have larger holdings than passives, with assets of $24 trillion compared to $6 trillion in passive funds. However, assets managed in passive mutual funds have grown four times faster than traditional active products since 2007.
“These figures have to be worrying to fund managers who are essentially sitting on large amounts of assets and charging the wrong fees, and who are unable or unwilling to take the risks to try and outperform their indices,” said Dan Mannix, chief executive officer at London-headquartered RWC.
Related stories:
Latest ETF data revealed
Where have all the hedge funds gone?
